Things Will Get Better. Seriously.
Reasons to be hopeful about the Biden economy.
Paul
Krugman
By Paul
Krugman
Opinion
Columnist
Dec. 31,
2020
The next
few months will be hell in terms of politics, epidemiology and economics. But
at some point in 2021 things will start getting better. And there’s good reason
to believe that once the good news starts, the improvement in our condition
will be much faster and continue much longer than many people expect.
OK, one
thing that probably won’t get better is the political scene. Day after day,
Republicans — it’s not just Donald Trump — keep demonstrating that they’re
worse than you could possibly have imagined, even when you tried to take into
account the fact that they’re worse than you could possibly have imagined. One
of our two major political parties no longer accepts the legitimacy of
elections it loses, which bodes ill for the fate of the Republic.
But on
other fronts there’s a clear case for optimism. Science has come to our rescue,
big time, with the miraculously fast development of vaccines against the
coronavirus. True, the United States is botching the initial rollout, which
should surprise nobody. But this is probably just a temporary hitch, especially
because in less than three weeks we’ll have a president actually interested in
doing his job.
And once
we’ve achieved widespread vaccination, the economy will bounce back. The
question is, how big will the bounce be?
Our last
economic crisis was followed by a sluggish recovery. Employment didn’t return
to 2007 levels until 2014; real median household income didn’t regain the lost
ground until 2016. And many observers expect a replay of that story, especially
if Republicans retain control of the Senate and engage, once again, in economic
sabotage under the pretense of being fiscally responsible.
But the
crisis of 2020 was very different from the crisis of 2008, in ways that make
our prospects look much better this time around.
The last
economic crisis involved a Wile E. Coyote moment: The private sector suddenly
looked down, realized that there was nothing supporting extravagant housing
prices and extremely high levels of household debt, and plunged. The result was
an extended period of depressed spending. The only way to have avoided multiple
years of high unemployment would have been sustained, large-scale fiscal
stimulus — and the G.O.P. prevented that.
This 2020
crisis, by contrast, was brought on by a headwind out of nowhere, in the form
of the coronavirus. The private sector doesn’t seem to have been particularly
overextended before the pandemic. And while we shouldn’t minimize the hardships
faced by millions of families, on average Americans have been saving like
crazy, and will emerge from the pandemic with stronger balance sheets than they
had before.
So I’m in
the camp that expects rapid growth once people feel safe going out and spending
money. Mitch McConnell and company will, no doubt, do what they always do when
a Democrat occupies the White House, and try to sabotage the recovery. But this
time the economy won’t need support as badly as it did during the Obama years.
And I suspect, although with less confidence,
that the boom will go on for a long time. Why? Because like a number of other
people, I’m getting optimistic about the future of technology.
The years
that followed the 2008 crisis weren’t just marked by sluggish job growth. They
also coincided with a period of technological disappointment. As the
entrepreneur Peter Thiel — whose politics I loathe, but who’s a good
phrasemaker — put it, it was an era in which we wanted flying cars but got 140
characters instead. (It’s a mark of how trivial this stuff is that raising the
limit to 280 characters seemed like a big deal.) That is, we were doing some
flashy stuff pushing information around, but not making much progress in the
material world, which is still where we mainly live.
Lately,
however, I’ve been hearing a lot of buzz around new physical technologies that
reminds me of the buzz about information technology in the early 1990s, which
presaged the productivity surge from 1995 to 2005. Biotechnology finally seems
to be coming into its own — hence those miraculous vaccines. There has been
incredible progress in renewable energy; I’m old enough to remember when solar
power was considered a hippie fantasy, and now it’s cheaper than fossil fuels.
There’s room for more skepticism about the near-term prospects for things like
self-driving vehicles and lab-grown meat, but the fact that we’re even talking
about such innovations is a good sign for the future.
This new
wave of innovation doesn’t have much to do with policy, although progress in
renewables can be partly attributed to the Obama administration’s promotion of
green energy. But the Biden administration, unlike its predecessor, won’t be
anti-science and won’t try desperately to preserve the coal-burning past. That
will help us take advantage of progress.
I’m less
confident in my techno-optimism than I am in my expectations for a rapid
employment recovery once we’ve been vaccinated. But all in all, there’s a
pretty good chance that Joe Biden will preside over an economy that surprises
many people on the upside. Happy New Year.
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Paul
Krugman has been an Opinion columnist since 2000 and is also a Distinguished
Professor at the City University of New York Graduate Center. He won the 2008
Nobel Memorial Prize in Economic Sciences for his work on international trade
and economic geography. @PaulKrugman
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